In-Kind Contributions

Nonprofit organizations are often the recipients of inkind contributions as well as monetary contributions. In-kind gifts are noncash transactions that involve goods or services donated by individuals, corporations, and associations. Instead of cash, the nonprofit organization receives some other gift that assists in carrying out its mission. Common examples of inkind contributions are donated space, office supplies, printing and shipping, health aids, land, technical advice, discounts not otherwise available, and many other types of goods and services. In 2003, the value of in-kind contributions accounted for nearly 50% of all giving, surpassing monetary giving from both foundations and corporations in the United States.

While in-kind contributions are as widely varied as the missions that drive nonprofit groups, there are generally three categories of contributions. First, it is common for businesses to give products, supplies, and equipment to nonprofit organizations. A charity that supports children may receive products for meeting clients' needs (e.g., diapers and baby clothing) and operating the organization (e.g., furniture and office supplies). Second, nonprofit organizations are often allowed to use facilities and services for free or a reduced fee. A women's shelter hosting a dinner and silent auction may receive in-kind donation of a hotel ballroom and a catering discount to reduce expenses and increase proceeds from the event. Finally, some firms donate professional services and employee expertise to nonprofit organizations. All organizations need legal, marketing, and tax advice, but these services are expensive. Instead of raising funds to cover these expenses, a nonprofit manager may seek in-kind donations of time and expertise.

While most nonprofit organizations have plans for increasing financial resources, fewer have formal inkind contribution strategies. A formal approach to inkind gifts goes beyond a “wish list” to include a broad analysis of the organization's needs and ultimately allows the nonprofit organization to use monetary funds for directly supporting clients and enhancing programs. Gifts In Kind International assists both nonprofits and businesses in meeting their goals for in-kind contributions. The organization, which is the third largest charity in the United States, uses online technology to match business donations to the specific needs of nonprofits around the world. Gifts In Kind has facilitated more than $4 billion in “product philanthropy” since 1983 and works with 200,000 charities and nearly half of Fortune 500 companies in the United States and other countries.

Given its significance and potential benefits, it is important for nonprofit organizations to properly document and account for in-kind contributions. A key task is to determine the value of contributions, which is typically based on fair market value or the cost to the organization if the goods and services were not donated. For example, if a software firm donates new software packages to a nonprofit hospital, the software is likely to be valued at the price the hospital would have paid to receive the software. If the software is [Page 1135]dated or used, the fair market value would be determined differently. Once the in-kind gift has been valued, it is recorded as both an expense and a contribution in the general ledger. This accounting reflects the fact that the gift represents a contribution as well as an expense normally incurred for operating the nonprofit organization and/or its programs. Finally, the donor should receive a signed receipt that describes the in-kind contribution, its estimated value, the date of donation, and other details.

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